What is Customer Value?
A beginner-friendly definition, plus how to think about it in your business
Customer value is about value to the customer.
Not how much value the customer generates for the company.
Many business people don’t seem to understand the difference, and why it matters.
Let me break it down for you:
If you focus on creating customer value, you will also create company value.
If you focus on creating value for the company, this doesn’t necessarily create customer value or lead to a positive customer outcome.
By aligning your actions to the interest and benefit of your customer, you are creating a source of competitive advantage and a win-win situation.
This concept is explained beautifully in the below quote:
“Customer will create most value for you at the point where he thinks you’re creating most value for him.”
— Don Peppers
All businesses want to increase revenue, profits and shareholder value.
To keep growth rates high in the face of persistent customer churn, many businesses rely on sales to new customers, funded by marketing dollars.
Here’s the uncomfortable reality for many businesses
Acquiring new customers is difficult and expensive. Sales cycles can be long, conversion rates are under pressure and onboarding & activation is slow. The profitability of new customers often remains negative for quite some time. It can take months, or even a year to just reach break-even!
Meanwhile, your loyal existing customers, which account for most of your company revenues are being taken for granted. No one is talking to the existing customers, except for contract renewals or price increases!
Did you know it costs 5-25x less to grow and retain an existing customer compared to acquiring a new customer? Despite this fact, budgets and resources for managing existing customers can be limited or non-existent. Many companies have developed a finely tuned and well-oiled sales machine, whereas the customer post-sales environment still remains new and unchartered territory.
That’s exactly what I’m here to solve
Scaling Customer Value is a business education newsletter. It offers simple and actionable insights into monetising and engaging your existing customers. Highly relevant for operators, business owners, founders and investors who wants to understand how to turn an existing customer base into a growth engine.
Written by Jens Stark, with 15+ years of experience in Customer Value Management (CVM), Existing Customer Management (ECM) and Customer Success (CS). Previously at NatWest Group and Barclays, and now working in the Fintech startup industry. MBA qualified from the University of Cambridge, UK.
The definition of customer value
Customer value can be described as the perceived worth of your product/service to the customer, less the costs that the customer incurs.
The customer also factors in benefits vs drawbacks associated with using your product or service in their overall assessment of customer value.
These can be direct or indirect, hence why the concept of customer value expands beyond the product/service itself. In other words, customer value also considers intangible aspects such as customer service, user experience and brand association.
Customer value = Perceived worth/benefits - Costs/drawbacksThe customer’s overall perception becomes your reality.
How to increase customer value
As there are multiple dimensions to customer value, let’s dissect this and approach things systematically, one thing at a time.
Worth
→ Solve for real problems that customers care about, don’t just add more features. Listen carefully and understand what your customers really need and want. Enhance your product/service by adding and removing things to optimise customer utility.
Benefits
→ Win the hearts and minds of customers by considering intangible aspects, such as creating a frictionless customer journey and offering great customer support.
Costs
→ Lower the price (e.g. seek to reduce manufacturing costs through lower overheads, material costs, identify process efficiencies, introduce automation etc).
Drawbacks
→ Eliminate/mitigate drawbacks beyond the product/service itself (e.g. customer service waiting times, shipping/delivery issues or similar product and process pain-points. Look closely at customer feedback or complaints for ideas how to improve.
You should aspire to improve ALL of the above aspects to maximise customer value for your product/service
Although you may find it practical to double-down on only one or two areas where your company has most leverage (e.g. your competitive advantage) versus competitors.
Your chosen mix across these different aspects becomes your customer value strategy.
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Hope to see you soon!
Jens
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Exceptionally clear framing. Centering value on the customer (not the balance sheet) is still the most underutilized competitive advantage
The Don Peppers quote is awesome and basically sums up the entire game in one sentence. Too many companies optimize for LTV instead of genuine value creation, then act shocked when churn spikes.